Market commentators blamed the early decline in the S&P 500 yesterday on a “disappointing” ADP monthly employment report. I don;’t think this is right, in two respects:

–it doesn’t appear to me that, given horrible weather which can’t have been captured in any seasonal adjustment, the report was disappointing, and

–even if it were, I don’t think the report itself was a cause of yesterday’s market decline.

As to the report,

according to ADP the US economy added 212,000 new jobs last month. That’s not the explosive growth that the Bureau of Labor Statistics has been reporting recently. But 200,000+ is still way above what’s needed to absorb new market entrants. So it implies that unemployment is still being steadily whittled down. Also,

the ADP numbers have been coming in substantially below the BLS ones recently, so there’s no good reason to believe that they are predictors of the official government figures being released tomorrow. Even if they were, February would still be a continuation of the string of hefty job gains the economy has ben cranking out for over a year.

Yes, maybe there are computer-driven traders whose machine quickly scan important press releases and trade based on what they find. But I don’t think they’re enough to keep the market down.

About the market,

it seems to me that yesterday’s decline is purely technical. That is, traders believe that we’re at the upper bound of potential short-term upside (another way of saying that we’ve reached pretty close to the total gain investors believe the S&P 500 has in it for 2015). They see little potential for quick profit, so they shift to selling, for two reasons: they want to see how far they can push the market down before they meet resistance, and they want to establish more profit potential (say, +5%) before going long again.

Put another way, they’re trying to establish the boundaries of the trading range, or channel, they (me, too) think the market will be trading in until either better earnings news is in the offing or we understand more about what effect any Fed interest rate hikes will have on stocks.